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From Cartel to Corporation: Drug Trade Economics

By Marc Lacey January 7, 2010 12:50 pmJanuary 7, 2010 12:50 pm

ReutersFederal police patrol an impoverished neighborhood in the border city of Ciudad Juarez.

Two prosperous business executives sat across a desk from each other a few months back in Ciudad Juarez, a violence-wracked Mexican town not far from El Paso, engaging in an intense negotiation. The man proposed a price of 4,000 pesos. The woman insisted she could not afford that much. How about 2,500?

A deal was struck, and the man, an extortionist linked to one of Mexico’s notorious drug trafficking organizations, the Juarez Cartel, quickly got up and left. Trembling and wiping away tears as she recounted the shakedown, the woman said she now delivers an envelope to the cartel every week containing thousands of dollars — 2,500 pesos, or about $200, for each of the businesses that her family operates in this city that has become ground zero in Mexico’s drug war.

“It makes me sick that I’m essentially in business with these guys,’’ said the businesswoman, who insisted that her name not be printed out of fear that the extortionists would retaliate.

The cartels are corporations as well as criminal enterprises.

Illegal drugs still make up the bulk of the Mexican cartels’ business, bringing in billions of dollars a year. But the drug cartels respond to market conditions just like other businesses, and — in economic speak –interruptions in their supply chain and the rising cost of sales have pushed them to diversify their business to improve their cash flow and solidify their hold over crucial delivery routes.

“We’re fighting the cartels and it’s harder for them to move their drugs,’’ explained Enrique Torres, a spokesman for the joint military-police anti-drug operation in Ciudad Juarez. “So they’re moving to other activities.’’

An army counternarcotics patrol in Reynosa, a Mexican border town across from McAllen, Tex., spends only part of its time on the lookout for drugs, guns and money.The army one night raided a house, where armed drug enforcers known as the Zetas were holding scores of Central American migrants en route to the United States while they pressured their relatives for ransom. The patrol seized vehicles used by traffickers, many stolen from across the border in Texas. And it guarded oil installations owned by the Mexican government, since Zetas have been known to break in late at night, steal oil and use forged import documents to get it across the border.

“This is all part of the fight,’’ said Col. Juan José Gómez, a member of the Eighth Military zone in Reynosa.

The new ventures reinforce that the cartels are corporations as well as criminal enterprises, a point that authorities say becomes clearer as they study the organizational structures and inner workings of the groups.

“You have the C.E.O. and you have the board of directors,’’ said Jesse Guillen, a former prosecutor in Laredo, Tex., who has prosecuted cases against the Zetas. “They have individuals who are their muscle, the front line guys. Then they have special ops. There are professionals too, white-collar people helping out with accounting and law.’’

In recently filed indictments of top cartel leaders in the United States, federal prosecutors referred to Vicente Carrillo Fuentes, founder of the Juarez Cartel, as occupying “a supervisory and management position’’ in the cartel and as being the “principal administrator, organizer and leader’’ of the criminal enterprise that brought in millions of dollars in “gross receipts’’ over one year from trafficking cocaine.

“When you see these crime syndicates going into other ventures, you start talking about ‘diversification,’ ’’ said Lucinda Vargas, a former economist at the Federal Reserve Bank who now runs Strategic Plan of Juarez, a community redevelopment effort. “They have the ‘comparative advantage,’ and ‘out-equip’ the competition. They have ‘economies of scale’ and a ‘market.’ They are illegal and cruel but they are behaving with an economic rationale.’’

One who understands that better than most is Chris Heifner, a community college economics professor who once smuggled drugs from southern Texas to cities further north and delivered proceeds back to cartel bosses in Juarez.

He says he was arrested in 2000 with a load of marijuana worth $300,000 in his rental car, and then spent years working as an informant for the Drug Enforcement Administration. Now holder of an M.B.A., a motivational speaker and an economics professor at El Paso Community College, he is working on a book about his experience as a professional who trafficked for a cartel on the side.

“I’ve met many people of all walks of life connected to the business,’’ he said, indicating that drug traffickers do not always meet the stereotypical view of drug traffickers. “I met one accountant and he had five bodyguards and a caravan of vehicles. He was skinny, about 40 years old. But he was important.’’

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